USD/JPY likely to settle around 106 by end-2016, says Lloyds Bank

In the last month, the USD/JPY pair has exhibited increased levels of volatility, especially after Donald Trump won the U.S. Presidential elections. Since JPY is the market’s preferred ‘safe-haven’ currency, the Japanese yen initially rallied close to 101, as part of a wider classic ‘risk off’ move, noted Lloyds Bank in a research note. But it reversed rapidly as the market started debating the possible economic implications of the results.

After trading back above 108, the currency pair is nearing the upper-end of its recent range. The monetary policy, looking forward, gives balance risks to the currency. Looking at the tone of the U.S. Fed’s policy makers after the November’s meeting, the equity markets’ resilience and the strength of economy data, the Fed is expected to hike the rates by 25 basis points in December, according to Lloyds Bank.

But the Japanese central bank, Bank of Japan, after its shift to a “yield curve targeting” regime in September, kept its policy on hold during its last meeting. This ‘hawkish’ stance is expected to be continued over the months ahead. Moreover, the ongoing re-pricing of political-oriented events, such as Italy’s constitutional referendum, also poses risks on the downside to USD/JPY.

“We expect USD/JPY to trade in a range, and settle around 106 by end-2016”, added Lloyds Bank.

At 10:00 GMT the Hourly Japanese Yen Strength Index stood highly bearish at -121.198. For more details on FxWirePro's Currency Strength Index, visit http://www.fxwirepro.com/currencyindex